FORM 10-KSB/A

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

          [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended January 31, 2001

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                        For the transition period from to

                         Commission File No. 33-4460-NY

                     --------------------------------------

              TASTY FRIES, INC. (FORMERLY ADELAIDE HOLDINGS, INC.)
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)


             NEVADA                                        65-0259052
   -----------------------------                -------------------------------
    State or other jurisdiction                         (I.R.S. Employer
   incorporation or organization                       Identification No.)

                          650 SENTRY PARKWAY, SUITE ONE
                               BLUE BELL, PA 19422
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (610) 941-2109

                             -----------------------

        Securities registered pursuant to Section 12(b) of the Act: None
        Securities registered pursuant to Section 12(g) of the Act: None

         Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

Yes  [X]         No  [ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

State issuer's revenues for its most recent fiscal year:  None

The aggregate market value of the common voting stock held by non-affiliates as
of April 20, 2001: Not Determinable.

Shares outstanding of the registrant's common stock as of April 20, 2001:
40,903,902 shares.


<PAGE>


PART I

ITEM 1. DESCRIPTION OF BUSINESS.

(A)  GENERAL BUSINESS DEVELOPMENT

     Tasty Fries, Inc. (the "Company") was incorporated under the laws of the
State of Nevada on October 18, 1985, under the name Y.O. Systems, Ltd. The
Company was organized to raise capital and then seek out, investigate and
acquire any suitable assets, property or other business potential. No specific
business or industry was originally contemplated. The Company was formed as a
"blank check" company for the purpose of seeking a business acquisition without
regard to any specific industry or business.

     The Company was unsuccessful in certain business proposals and began
actively looking for a business acquisition during 1990.

     Effective July 29, 1991, the Company issued 13,500,000 shares of restricted
common stock (after giving effect to a 1 for 50 reverse stock split) to the
stockholders of Adelaide Holdings, Inc., a private Delaware corporation
incorporated in April, 1990 (hereafter referred to as "AHI"). The 13,500,000
shares represented approximately 80% of the 16,845,370 shares of common stock of
the Company outstanding after the acquisition.

     The Company also amended its Articles of Incorporation to include a
provision that officers and directors of the Company are not liable for damages
as a result of a breach of fiduciary duty except in certain specified instances
under Nevada law. In September 1993, the Company amended its Articles of
Incorporation changing its name to Tasty Fries, Inc.

     On December 16, 1996, a majority of the issued and outstanding voting
securities of the Company, by written consent, approved a 1 for 20 reverse split
of the Company's common stock and authorized an amendment to the Company's
Articles of Incorporation to change its authorized common shares to 25,000,000
shares of common stock and its par value to $.001 per share. The Amendment was
filed with the Nevada Secretary of State on December 18, 1996 and the reverse
stock split was effective on December 23, 1996. Thereafter, the Company has
changed its authorized common shares to 100,000,000.


(B)  BUSINESS OF THE COMPANY

     GENERAL

     The Company has developed a patented French fries vending machine (the
"Machine"). The Company intends to manufacture and market the machine in both
domestic and international markets through a combination of exclusive,
territorial distributorships and traditional sales to established companies in
the vending industry. The Company may also own and operate machines itself. The
Machines are expected to be located in high-traffic locations that have
historically been successful for vending operators, such as universities,
airports, bus and train stations, high schools, military bases, industrial
locations and recreational venues.



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     The Company has also developed a related proprietary potato product for the
production of French fries in the Machine (the "Potato Product"). Although the
Company has developed its own potato product, the Company presently intends to
purchase a comparable potato product, for use in the machine, from a third
party. This strategic determination is driven by the high costs associated with
establishing a production line to produce its own, proprietary Potato Product.
At such time as the economics of the business and the success of the machine
warrant the capital investment of a production line, the Company may manufacture
its own, proprietary Potato Product or license the product to a contract
manufacturer.

     The Company's basic business strategy is to market the machines and the
ancillary products that are required to prepare each serving of French fries.
These ancillary products include the potato product, vegetable cooking oil,
serving cups and condiments. The Company's long-term profitability and success
will be driven primarily by the revenue and accompanying profit to the Company
associated with each and every vended portion sold from its installed base of
Machines.

     The Company had previously received a federally registered trademark for
its former name and logo, "Adelaide." The Company has subsequently federally
registered its name and logo, "Tasty Fries," as a federal trademark on the
Supplemental Register and has been marketing the Machine and its products under
that name.


DESIGN AND MANUFACTURING

     In 1992, persons then associated with the Company filed a U.S. patent
application with respect to a device for the vending of fresh French fried
potatoes (the original machine), which was assigned to the Company on October 9,
1992. In January 1993, the Company entered into a manufacturing agreement with
Premier Design, Ltd. ("Premier") for the production of its vending machine (the
"Premier Agreement"). The Premier Agreement provided that Premier would refine
and manufacture the original machine. The Agreement called for the Company and
Premier to share the development costs of the project; such costs were to
include design, engineering and initial manufacturing costs projected over the
initial quantity of production machines. The Agreement also provided for Premier
to manufacture any additional or similar machines for the Company. The Premier
Agreement could not be terminated by either party so long as Premier provided
the Machines as required by the Company. Pursuant to the terms of the Premier
Agreement, the first initial production of machines was to be delivered by June
15, 1993.

     As one element of the process undertaken by Premier, an engineering review
of the machine was to be performed. Mr. Harry Schmidt, president of Premier,
retained the services of Mr. Edward C. Kelly to perform said evaluation. In
February 1993, Mr. Kelly submitted the findings of his evaluation. Mr. Kelly's
study found the device failing to perform as anticipated and his review
identified significant and numerous mechanical and design problems. Mr. Kelly
and Premier's recommendation to prior management was that the existing machine
should be abandoned completely. Prior management, none of whom are presently
connected with the Company, believed they had developed a viable production
model French fry vending machine. They decided to abandon the original device.
The Company retained Premier Design to design




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and develop a machine based on new and different technology. Kelly and Premier
began the process of designing a new machine in March 1993.



     Premier is a private company owned by Mr. Schmidt. Mr. Schmidt was
subsequently appointed to the Company's Board of Directors in May 1993, but did
not stand for reelection to the Board in September 1995. At the time of the
original Premier Agreement, neither Mr. Schmidt nor Mr. Kelly had any
affiliation with the Company. Edward C. Kelly joined the Company as Executive
Vice President in January 1994 and was subsequently appointed to the Company's
Board of Directors in February 1994. In June of 1994, he was named President of
the Company.


     In December 1994, having completed much of the design and development of
the new Machine, the partners amended the original manufacturing contract (the
"Premier Amendment"). The Premier Amendment described the terms under which
Premier would manufacture the 10 prototype models of the new machine and begin
manufacture of the production units.

     In July 1996, a U.S. patent was issued in Mr. Kelly's name for the Machine.
Mr. Kelly assigned the patent rights for the Machine to Premier based upon the
terms of the Premier Amendment and the express understanding between Premier,
the Company and Mr. Kelly (individually) that: (i) upon issuance, the patent
would be assigned 100% to Premier as consideration for the significant funds
expended by Premier in the development of the machine; (ii) Premier would
immediately assign the Company a 50% interest in the patent upon payment to
Premier by the Company of one-half of the total development costs.

     The Company's 50% share of the development costs were later determined to
be $650,000 (not including the $350,000 paid by the Company for the 10 prototype
machines). Premiere accepted 700,000 shares of Tasty Fries common stock in full
payment of the obligation to them. Premiere will also receive $250 per machine
manufactured by the third party.

     In the spring of 1996, the Company and Premier agreed that Premier would be
unable to manufacture the Machines under the terms of the Premier Amendment. On
June 17, 1996, the Company announced its intention to award the manufacturing
contract for the Machine to S&H Electronics of Robesonia, Pennsylvania ("S&H"),
an unaffiliated third party, and subsequently entered into a non-exclusive
manufacturing agreement with S&H for such purpose. S&H is a
contract-manufacturer, which specializes in the assembly and testing of
electro-mechanical assemblies and equipment. Subsequently the contract was
cancelled. In January 2000, the Company opened an assembly facility in
Portsmouth, New Hampshire and hired sub-contractors to produce the first
twenty-five units.


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PRE-PRODUCTION TOOLING

     The pre-production tooling stage for the machine is a critical element of
the process of getting the machine into commercial production. The Tasty Fries
device is comprised of approximately 3,100 individual parts. A portion of these
parts are basic, "off-the-shelf" manufacturing components such as hardware,
lighting and electrical components. However, approximately 75% of the components
are customized parts that require a subcontract supplier to manufacture
specifically for Tasty Fries. Because of the costs associated with manufacturing
these custom-designed parts, the most critical components have been designed to
be tooled, molded or cast by the various suppliers. While very costly and
time-consuming in the front-end of a project, the tooling of various component
parts will: (a) ensure the consistency and quality of the machine's critical
parts and (b) greatly reduce the unit costs of both the individual parts and the
overall machine, as production volume increases. As with the overall business
plan, the tooling process itself has been delayed over the past 12-18 months due
to the lack of capital available to complete the process.

     The pre-production tooling stage is complete. The Company is considering,
but has not made a determination to produce a tabletop model of the machine.
Modifying the existing machine for tabletop use and ordering tooling would cost
approximately $200,000 to $300,000. Customized parts will be marketed to
operators of the machine, be they owners or leasees. No third parties will have
any interest in the sale of the parts. The Company is unable to estimate when
sale of the parts might commence but when they do, revenues are not expected to
be significant.

THE MACHINE

     The Machine is designed to produce quality, freshly-made French fries
utilizing a unique method that automatically converts a dehydrated potato
product into rehydrated potato mix, delivers this mix into a proprietary forming
and cooking cycle, and finally into complete, high-quality, freshly-made French
fries. The potato product can be stored at room temperature, has a shelf-life of
between 12 and 24 months (depending on storage conditions), requires no
refrigeration or freezing, and occupies less storage space than frozen fries,
thereby offering greater storage capacity than competing technologies which use
frozen French fries. The French fries are delivered to the consumer in a 4-ounce
serving of 32 French fries. From the time currency is deposited, the total vend
time for an order of fries from the final production model Machine is estimated
to be approximately one and one-half minutes. The utilization of a
state-of-the-art combination of computer driven mechanics makes this possible.

     The design of the Machine involves the use of a vegetable oil enabling the
process to deliver a cholesterol-free product. Each vend contains French fries
which are crisp and golden brown. The quality of the product is consistently
uniform in each vend. The Machine has the capacity to produce 500 vends before
any refill of potato product or other ingredient is required. The Machine is
computer-controlled and communicates with the consumer from the time the money
is deposited into it until the time the vended cup of fresh French fries is
delivered. The Machine can accept dollar bills, coins or any combination
thereof, depending on the vend charge, which can be changed at anytime by simply
reprogramming the currency mechanism.


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     The Machine requires a 220-volt electrical connection (although the Company
plans for the production models of the machine to require a 110-volt connection)
and is equipped with modern computer technology using microprocessors and
sensors. If the machine operator desires, the Machine can communicate with a
central database, via modem, to make available immediate information on product
levels, service issues or currency levels. The machine's cash management program
enables it to monitor the cash position at any time and the amount of vends,
which allows for spontaneous and immediate cash reporting to the vending
operator.

     The Machine has been designed to be repaired on-site without the necessity
of being returned to the manufacturer. It is anticipated that ongoing
maintenance will be limited, and the majority of an operator's labor
expenditures will involve the replenishment of products into the Machines. At
such time, oil and water will be replaced, additional cups and condiments will
be restocked. Water will also be changed at such time unless the Machine is
directly attached to a plumbing supply, which is not necessary for the Machine's
operation. The frequency with which the Machine must be restocked depends
completely upon the number of vends dispensed daily.

     The Machine has received Underwriter's Laboratory ("UL") approval for the
United States and Canada. The Company is committed to placing in the market, a
reliable vending machine which will dispense our French fry product. We plan for
improvements to the machine at costs which are not material. These improvements
to the machine will require re-certification by UL, which may cause delay in
installation of the improved machine. The machine also received certification
from the National Automatic Merchandising Association ("NAMA") and from the
Federal Communications Commission ("FCC").

THE POTATO PRODUCT

     The Company's proprietary Potato Product for use in the Machine was
developed jointly by Tasty Fries, Inc. and Nestle Netherlands BV. Management
estimates that the cost to establish its own manufacturing line to produce the
Potato Product is significant. Due to the considerable costs involved and the
current availability of another potato product, the Company does not currently
intend to establish a manufacturing line for the production of its own product.
SEE "AVAILABILITY OF RAW MATERIALS."

MARKETING

     The Company has historically marketed the Machines and the products
exclusively through territorial distributorships. The Company currently intends
to market its products in both domestic and international markets through a
combination of exclusive, territorial distributorships and traditional sales to
established companies in the vending industry. The Company may also own and
operate machines itself.

     The existing distributorship agreements vary from territory to territory,
but essentially require an up-front payment and minimum annual payments usually
over the life of the contract. Most distributors must also pay a specified sum
per Machine purchased as a credit toward the minimum annual payments. Most
distributorship agreements require a minimum number of Machines to be purchased
per year.


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The Company has sold or granted an aggregate of 15 territorial distributorships.
In the course of normal business, some of these distributorships have been
reacquired by the Company and others have been terminated due to default on
behalf of the distributor. There are currently 3 distributorships, which have
not been terminated or reacquired. The distributor's obligations to make further
payments, after tendering the initial deposit required upon execution of the
distributorship agreement, are conditioned on the ability to ship its Machines
and related products. Management believes that once commercial production of
Machines is commenced and distributors notified and required to place orders for
Machines, some of such distributors may be financially unable to do so or may
simply elect not to purchase Machines and effectuate their respective agreement.

     The Company has retained the services of Claridge Capital Corporation to
assist with the Marketing and Sales of the Machine. Claridge has been
instrumental in developing and maintaining the Company's web site
(www.tastyfries.com) and introducing the Company to the marketplace. A
definitive contract with Claridge has not yet been finalized.

CALIFORNIA FOOD & VENDING, INC.

     In May 1991, the Company entered into a joint venture agreement with
California Food & Vending ("CFV"), another vending and food service company with
a high interest in the research and development of a French fry vending machine.
The companies planned to work together in the manufacturing and marketing of a
French fry machine. Disputes arose between the parties, litigation was
instituted by CFV and in July 1999 the disputes were settled and the litigation
dismissed. Pursuant to the settlement agreement, the Company regained
distributorship rights for the State of California; agreed to pay CFV the sum of
$1,000,000 which has been paid; issue 250,000 shares of our common stock to CFV;
and CFV will receive $350 for each of the first 500 machines produced and $450
per machine indefinitely thereafter and $.25 for each pound of potato product
sold by Tasty Fries.

LEASE FINANCING

     In September 1996, the Company entered into a vendor agreement (the "Vendor
Agreement") with Forrest Financial Corp., a leasing company, to provide lease
financing to distributors and others who may wish to lease Machines rather than
purchase them outright. The Vendor Agreement provides that up to $15 million
will be made available to qualified lessees for this purpose. The Leasing
Company has since qualified approximately 1,400 vending companies, which it
believes have the financial capability and experience to lease Machines from the
Leasing Company and place them in geographically desirable locations. The
Company believes that lease financing will be an important element of its
strategic plan, as leasing is a very prevalent financing structure used in the
vending industry.


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<PAGE>


COMPETITION

     The technology in Tasty Fries' machine has been awarded U.S. patent
#5,537,916 issued June 23, 1996. Other attempts to bring a French fry vending
machine to market have not utilized the Company's patented technology. Tasty
Fries process of using dehydrated potato distinguishes it from the competition.
Most attempts use either a frozen or pre-cooked potato and are heated by
microwave or convection oven. Tasty Fries' patented process is unique and
management believes produces the best tasting product. The Company faces
competition from other suppliers of French fries, including fast food outlets.
The Company is aware of other companies, which have test marketed French fry
vending machines or are in the process of developing such machines. Certain of
the companies may be viewed as competitors or may become competitors in the
future.

     Management believes, although no assurances are given, that due to current
demand for French fried potatoes, that there may be additional competition in
the future in the area of French fry vending.

AVAILABILITY OF RAW MATERIALS

     The raw materials or inputs used by the machine in the production of each
serving of fries are: potato product, cooking oil, water, serving cups and
condiments. Management believes that the oil, condiments and serving cups used
in the dispensing of French fries are readily available from its current
suppliers. In the event that one or more of these materials were to be
unavailable from a current supplier, the Company is confident that comparable
substitute products would be available from other suppliers. We presently
purchase potato product from Nestle Netherlands BV and have entered into a
contract with them for the purchase of the product. At such time in the future
as may be warranted by the success of our business, we may elect to enter into
the production of our own proprietary potato. SEE "POTATO PRODUCT."


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<PAGE>


PATENTS AND PROPRIETARY RIGHTS

     The Machine's inventor, Edward C. Kelly, is Tasty Fries' President and
Chief Executive Officer and was issued a patent by the U.S. Patent and Trademark
office in July 1996. In addition, the Company is seeking, but has not yet
received, patent protection in Canada, Japan, Israel, Brazil and the European
Patent office (which currently represents 17 European countries). The Israel
patent has been granted; the Company is awaiting examinations of the European
and Brazil applications; the Canada and Japan applications have been deferred,
the Company can not estimate when these patents will be granted.

     The Company intends to seek patent, trademark and related legal protection
in the future where it deems the same to be beneficial. However, legal
protections and precautions do not prevent third party development of
competitive products or technologies. There can be no assurance that the legal
precautions and other measures taken by the Company will be adequate to prevent
misappropriation of our proprietary technology. Notwithstanding the foregoing,
the Company does not intend to be solely dependent upon patent protection for
any competitive advantage. The Company expects to rely on its technological
expertise and the early entry into the marketplace of its products to further
enhance its position as a leader in the field and protect its technologies.

GOVERNMENTAL APPROVALS AND REGULATIONS

     The Machine was designed and developed in consideration of applicable
governmental and industry rules and regulations. Management believes that the
Machine's design complies with National Sanitation Foundation ("NSF") guidelines
as well as Underwriter's Laboratory ("UL") standards. The Machine has received
UL approval and will receive NSF approval prior to sale and installation. The
Company has requested that the Machine be inspected and expects to have the
Machine inspected by various regulatory agencies during the production process
but prior to sale and installation. In this regard, management has begun the
process of obtaining UL certification. The Company is also seeking certification
from the National Automatic Merchandising Association ("NAMA"). Management has
been advised that all certifications and approvals should be applied for upon
commercial production and would not issue until such time. Management believes,
although no assurance is given, that the required approvals from various
regulatory agencies are obtainable and are not currently aware of anything that
will delay the necessary approvals.

     Management is not aware of and does not believe that there are any
specifically applicable compliance requirements under state or federal
environmental or related laws relating to the manufacture and operation of the
machine.

RESEARCH AND DEVELOPMENT COSTS

     For the fiscal years ended January 31, 2001 and 2000, the Company incurred
$1,094,067 and $144,403, respectively, in costs and expenses relating to the
research and development of its machine.



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     The Company could incur additional research and development costs over the
next year should a counter top model of our French fry vending machine be
introduced. No decision has been made regarding introduction of such a model.
Projected costs to design and develop this model should not exceed $300,000 as
much of the technology can be transferred from the standard vending machine.

PERSONNEL

     As of January 31, 2001, the Company had a total of three full-time
employees. Additional employees are expected to be hired during the next 12
months if the Company's proposed plan of operation is successful and there is
sufficient cash flow from operations to support such additional expense. If
hired, such additional employees may include a director of marketing, a chief
financial officer, and sales and marketing personnel. At the present time,
management is unable to estimate how many employees will be needed during the
next 12 months.

ITEM 2. PROPERTIES.

     The Company owns no properties. Since June 1994, it has leased executive
office space at the premises located at 650 Sentry Parkway, Suite One, Blue
Bell, Pennsylvania 19422. The Company's current lease commitments total
approximately $2,085 per month until May 31, 2001. At the present time,
management believes that this office space is sufficient; however, the Company
may require additional space during the next 12 months. The Company also rents
2,500 square feet of space in an industrial park in Portsmouth, NH on a month to
month lease at $850 per month.

ITEM 3. LEGAL PROCEEDINGS.

     On August 28, 1996, the Company, Edward C. Kelly and Premier Design, Ltd.
were added as defendants to a civil law suit in the Riverside County Branch of
the Superior Court of the State of California brought by Prize Frize, Inc.,
William Bartfield and Larry Wirth. The suit also named as defendants
approximately 25 other parties, all allegedly involved, in some manner, in the
pursuit of the French fry machine concept and/or business. The case was removed
to Federal Court. The Company successfully moved for dismissal of the claim on
behalf of itself and Mr. Kelly; the case was dismissed on June 2, 1997. The
Federal Court reversed the dismissal on appeal and the case was remanded to
State Court. The plaintiffs' claim against Tasty Fries was severed. The claims
against Edward C. Kelly and Premier Design, Ltd. were dismissed. The claim
brought by Prize Frize asserts that the Company has usurped its trade secrets by
developing a French fry vending machine, which utilizes the Basic American Food
potato product. The Company denies the allegations and is vigorously defending
the litigation. It is the opinion of the Company's counsel that Prize Frizes'
lawsuit lacks merit and that the Company will prevail.


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<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matter was submitted to a vote of security holders through solicitation
of proxies or otherwise during the fourth quarter of the fiscal year covered by
this Report.

PART II.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.

     The common stock of the Company is quoted on the OTC Bulletin Board, under
the symbol "TFRY." The following table sets forth the highest and lowest bid
prices for the common stock for each calendar quarter during the last two years
and subsequent interim periods as reported by the National Quotation Bureau.

     The prices set forth below represent inter-dealer quotations, without
retail markup, markdown or commission and may not be reflective of actual
transactions.

                                            High Bid            Low Bid
                                            --------            -------
        FISCAL 1999
        -----------
        First Quarter                        $ .95               $ .51
        Second Quarter                       $ .85               $ .45
        Third Quarter                        $1.30               $ .38
        Fourth Quarter                       $ .59               $ .32

        FISCAL 2000
        -----------
        First Quarter                        $ .87               $ .25
        Second Quarter                       $ .78               $ .42
        Third Quarter                        $ .84               $ .35
        Fourth Quarter                       $ .73               $ .34

        FISCAL 2001
        -----------
        First Quarter                        $ .73               $ .38
        Second Quarter `                       .54                 .35
        Third Quarter                          .57                 .32
        Fourth Quarter                         .44                 .20

(B)  HOLDERS.

     The approximate number of record holders of the Company's common stock as
of April 26, 2001 is 1,214.

(C)  DIVIDENDS.

     The Company has not paid any cash dividends to date and does not anticipate
or contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.


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ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION.

     PLAN OF OPERATION

     The Company's basic business model is to market the Machines and the
ancillary products that are required to prepare each serving of French fries.
These ancillary products include the potato product, vegetable cooking oil and
serving cups. The Company's long-term profitability and success will be driven
by a significant degree by the revenue and accompanying profit to the Company
associated with each and every vended portion sold from its installed base of
Machines.

     With that business model in mind, the Company's current plan of operation
is to manufacture an initial quantity of 25 Machines. The parts, sub assemblies
and service aspects of the machines are being inspected, tested and being made
field ready. Effort is being made not to produce prototypes but to incorporate
designs into the machine which are needed for mass production. Five machines
have been installed. The Company plans to install an additional 20 machines
during 2001. This gradual plan of installations should enable the Company to
monitor the reliability of the machines and make adjustments to the machines as
required. Tasty Fries goal is to build a reputation as the manufacturers of
reliable equipment. The Company will own and operate all 25 machines. Tasty
Fries intends to place the majority of the machines in locations within 200
miles of the Portsmouth, New Hampshire area.

     Management believes that, once in full production, the business cycle of
the Company will allow it to operate in a cash positive fashion. That is, the
Company will require a significant advance payment from its customers with
receipt of each order; therefore providing a good portion of the capital
necessary to fund the procurement of essential component parts for machine
production. If management is incorrect in this assumption, the Company's capital
needs for manufacturing may be greater than currently anticipated. In this
event, the Company will be required to raise additional funds. There can be no
assurances given that any funding, including that which may be required to be
advanced, will be available or if available, on terms satisfactory to the
Company.

Liquidity and Capital Resources

     Since its inception, the Company has had no revenues from operations and
has relied almost exclusively on stockholder loans, limited distribution
deposits and sales of securities to raise working capital to fund operations. At
January 31, 2001, the Company had approximately $87,000 in cash.

     In June 1997, the Company received $1,000,000 from three non-"U.S.
Persons," as defined in Regulation S, in exchange for notes convertible into the
Company's common stock. The financing was completed pursuant to Section
903(c)(2) of Regulation S under the Securities Act of 1933. Pursuant to the
terms of the financing, the Company issued 1,142,857 shares of common stock to
be held in escrow, pending the potential conversion of notes. The notes bear
interest at 7% annually and had a maturity date of May 14, 2000. In connection
with the financing, the Company also issued 250,000 common stock purchase
warrants. In September


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1997, the note holders converted an aggregate of $397,679 of principal into
700,000 shares of common stock. In November 1997, the Company issued an
additional 380,000 shares of common stock to be held in escrow for potential
conversion of notes. As of January 31, 1998, the aggregate outstanding principal
balance of the convertible notes was $602,321. The remaining 822,857 shares of
common stock in escrow were not deemed to be outstanding as of January 31, 1998.
In February 1998, an additional 444,000 shares of common stock were issued into
escrow, pending conversion of the notes. During the year ended January 31, 1999
the Company issued 1,480,280 shares of common stock in satisfaction of the
remaining $602,321 of convertible notes.

     In November 1997, in a separate transaction, the Company received
$1,600,000 from six non-"U.S. persons," as defined in Regulation S, in exchange
for notes convertible into the Company's common stock. The financing was
completed pursuant to Section 930(c)(2) of Regulation S under the Securities Act
of 1933. Pursuant to the terms of the financing, the Company issued 2,400,000
shares of common stock to be held in escrow, pending the potential conversion of
notes. The notes bear interest at 6% annually and had a maturity date of
November 5, 2000. In connection with the financing, the Company also issued
720,000 common stock purchase warrants. As of January 31, 1998, the aggregate
outstanding principal balance of the convertible note was $1,600,000. The
2,400,000 shares of common stock in escrow were not deemed to be outstanding as
of January 31, 1998. In February 1998, an additional 960,000 shares of common
stock were issued into escrow pending the conversion of the notes. During the
year ended January 31, 1999 the Company issued 4,105,870 shares of common stock
in satisfaction of these convertible notes.

     In January 1998, the Company and a private investment corporation, a former
investor in the Company from April 1996, terminated the stock purchase agreement
that had been the basis for the original investment in 1996, due to lack of
performance on the investor's part. SEE "CONSULTANTS & ADVISORS."

     In April 1998, the Company entered into an agreement to receive $1,500,000
in proceeds from the sale of restricted stock to a U.S. corporation. The Company
issued 3,000,000 post-split shares of common stock as consideration. The Company
also issued warrants to purchase 1,500,000 post-split shares of common stock at
an exercise price of $1.90; the warrants expire April 12, 2001. The Company also
issued 150,000 post-split shares of restricted stock as a commission on the
transaction. The Company and the investor have entered into an escrow agreement
for this transaction and the shares were issued into escrow, pending funding. As
of January 31, 2001, the Company has received $1,375,000 of the total $1,500,000
financing and 2,750,000 of the total 3,000,000 shares have been released.

     Although management currently estimates that the April 1998 financing will
allow it to proceed with its current plan of operation, the Company will need to
raise additional capital to enter into full-scale production. If the Company is
unable to obtain the desired funding from any source, it is highly unlikely that
it will be able to generate a sufficient amount of cash to support its
operations during the 12 months following the date hereof, unless it is able to
obtain the necessary funds from the sale of debt and/or equity during such
period. Based upon its past history, management believes that it may be able to
obtain funding in such manner but is unable to predict with any certainty the
amount and terms thereof.


                                       12
<PAGE>


     Subsequent to January 31, 2001, the Company has issued additional shares
and warrants to purchase common stock to various parties as payment for services
rendered. The Company intends to continue this practice.

Results of Operations, Fiscal Years Ended January 31, 2001 & 2000

     We had no revenue for the fiscal years ended January 31, 2001 and 2000.
From fiscal 2000 to 2001, travel and entertainment expense increased from
$52,434 in 2000 to $89,710 in 2001, due primarily to an increase in air travel.
Consulting expenses decreased from $1,765,125 in 2000 to $1,027,684 in 2001. The
reduction in consulting expenses was due primarily to reduced dependency on
third party consultants to provide financial, business and marketing expertise.
Payroll and payroll taxes increased approximately 2% from $395,700 in 2000 to
$402,118 in 2001. Legal fees decreased $116,354, from $641,575 in 2000 to
$525,221 in 2001. In 2001, stock purchase discounts in the amount of $993,350
were incurred in connection with approximately $2.2 million dollars of stock
issued for cash and repayment of notes payable.

Results of Operations, Fiscal Years Ended January 31, 2000 & 1999

     The Company had no revenues for the fiscal years ended January 31, 1999 and
2000. From fiscal 1998 to 1999, travel and entertainment expenses decreased
approximately 9% from approximately $57,656 in 1998 to approximately $52,434 in
1999 primarily due to moderate decrease in business related travel. Consulting
expenses increased from approximately $172,600 in fiscal 1998 to $1,737,432 in
fiscal 1999. The increase in consulting expenses was primarily due to the
Company's increased dependence on consultants to provide financial, business and
marketing expertise. Payroll and payroll taxes decreased approximately 31% from
approximately $573,814 in fiscal 1998 to approximately $395,700 in fiscal 1999.
The decrease payroll and payroll tax expense resulted primarily from the release
of personnel in 1999. Legal fees increased approximately 220% from approximately
$200,750 in fiscal 1998 to approximately $641,575 in fiscal 1999 due to the
defense of various lawsuits and additional filings with SEC in association with
registration statement. Management believes, although it cannot be assured, that
it has made significant inroads in stabilizing its operating and overhead costs
and should be able to move forward with its business plan as discussed herein.

Results of Operations, Fiscal Years Ended January 31, 1999 & 1998

     The Company had no revenues for the fiscal years ended January 31, 1998 and
1999. From fiscal 1997 to 1998, travel and entertainment expenses decreased
approximately 61% from approximately $147,372 in 1997 to approximately $57,656
in 1998 primarily due to significant decrease in business related travel.
Consulting expenses decreased from approximately $1,238,039 in fiscal 1997 to
$172,600 in fiscal 1998. The decrease in consulting expenses was primarily due
to the Company's reduced dependence on consultants to provide financial,
business and marketing expertise. Payroll and payroll taxes decreased
approximately 10% from approximately $640,267 in fiscal 1997 to approximately
$573,814 in fiscal 1998. The decrease payroll and payroll tax expense resulted
primarily from the release of personnel in 1998. Tow employees were released in
1998. One employee found the commute from New York too time consuming and the
director of manufacturing was let go when manufacturing was out-sourced. The
decrease in personnel has not affected our operations. We believe, although it
can not be assured, that we have made significant inroads in stabilizing our
operating and overhead costs and should be able to move forward with our
business plan ad discussed herein.

Consultants & Advisors

     The Company has in the past, and will in the future, retain consultants
with significant experience in areas such as marketing, advertising and
financing.

     In April 1996, the Company engaged L. Eric Whetstone to provide business
consulting services. As compensation for these services, Mr. Whetstone received
a one-time grant of 250,000 shares of restricted stock and an annual grant of
37,500 shares of restricted stock for the five-year period of the consulting
agreement. In January 1998, the Company accelerated the payment of the annual
compensation to Mr. Whetstone called for over the term of the five-year contract
and issued him 175,000 shares of restricted stock. Also in January 1998, Mr.
Whetstone was issued a warrant to purchase 1,000,000 shares of common stock. The
warrants have an exercise price of $1.90 and an expiration date of January 5,
2001.

     The Company has retained the services of Claridge Capital Corporation to
assist with the Marketing and Sales of the Machine. Claridge has been
instrumental in developing and maintaining the Company's web site
(www.tastyfries.com) and introducing the Company to the marketplace. A
definitive contract with Claridge has not yet been finalized.

ITEM 7. FINANCIAL STATEMENTS.

     Audited balance sheets as of January 31, 2001 and 2000, and the related
statements of operations, of stockholders' equity deficiency and of cash flows
for the years ended January 31, 2001, 2000 and 1999 and for the period from
October 18, 1985 (inception) to January 31, 2001 are included after Item 12
herein.


                                       13
<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     Management is not aware, and has not been advised by any former
accountants, of any disagreement on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
Management has not consulted the accountants regarding either the application of
accounting principles to any specified transaction or any disagreement with any
former accountants.

PART III.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

(A)  IDENTIFICATION OF DIRECTORS & EXECUTIVE OFFICERS

     The current directors of the Company will serve until the next annual (or
special in lieu of annual) meeting of shareholders at which directors are
elected and qualified. Names, age, period served and positions held with the
Company are as follows:

                                        Positions with
         Name               Age            Company
         ----               ---         --------------

     Edward C. Kelly         64         President, Chief Executive Officer,
                                        Treasurer and Chairman of the Board*

     Leonard J. Klarich      66         Vice President, Secretary and Director*

     Jurgen A. Wolf          66         Director*

     Ian D. Lambert          55         Director

     Kurt R. Ziemer          45         Director

----------
*  Member of the Executive Committee of the Board of Directors. Mr. Klarich was
   also appointed Secretary by the Board of Directors on June 3, 1996.

     EDWARD C. KELLY - Mr. Kelly has been President of the Company since June
10, 1994, and a director since April 1994. He was appointed a member of the
Executive Committee on September 18, 1995, and Chairman of the Board of
Directors after the removal of Mr. Arzt (by a 2/3 majority vote of shareholders)
in June 1996. From January 1994 until June 10, 1994 he was Executive Vice
President of the Company. Mr. Kelly has been involved in the engineering and
design of the machine since 1993 and was awarded a U.S. patent in July 1996. Mr.
Kelly owned and operated Mega Products Corporation, a subcontract manufacturing
company, from 1970 through 1994. Mega serviced companies including IBM, GE,
Dupont, Gulf & Western and Kulick & Soffa.


                                       14
<PAGE>


     LEONARD J. KLARICH - Since September 1995, Mr. Klarich has been a director
of the Company and also was a consultant to management from March through May
1996. Mr. Klarich was retained as Executive Vice President of the Company in
June 1996 to assist in the day-to-day operations of the Company, with specific
emphasis on distribution networks, distributors and marketing. In June 1997, his
title was changed to Vice President. He was also appointed Secretary in June
1996. Mr. Klarich was Chairman of the Board of K&D, a high-tech graphic design
company located in Woodland Hills, California until early 1996. From 1976 to
1989 he owned and operated Avecor, Inc., a plastics manufacturing company with
revenue in excess of $40 million upon his sale of the company. Prior thereto, he
spent a number of years as a chief operating officer of companies in need of
turnaround due to financial concerns.

     JURGEN A. WOLF - Mr. Wolf has been a director of the Company and a member
of the Executive Committee of the Board of Directors since September 18, 1995.
Since 1983, he has been President of J.A. Wolf Projects, Ltd., a private
Vancouver company engaged in commercial and industrial contracting. From August
1992 to March 1993, Mr. Wolf was a director of Yukon Spirit Mines Ltd.
(currently known as Gainey Resources Ltd.). Mr. Wolf is also a director of four
Canadian public companies, which include: Consolidated Gulfside Industries,
Ltd., Shoreham Resources, Ltd., U.S. Oil Inc. and Key Capital Group, Inc.

     IAN D. LAMBERT - Mr. Lambert was appointed as a director of the Company in
July 1995 and was re-elected to the Board in September 1995. He is the President
of International Tasty Fries, Inc., a stockholder in the Company and, until
November 1996, was President of Yukon Spirit Mines Ltd. (now doing business as
Gainey Resources Ltd.). International Tasty Fries and Yukon are affiliated
entities. International Tasty Fries has a distributorship agreement with the
Company for a number of European countries; Yukon's distribution agreement was
reacquired by the Company in April 1998. Mr. Lambert has been involved with the
financing and management of numerous resource and industrial based public
companies, both in Canada and the U.S., since the early 1980's, and currently is
a director of five publicly traded companies of which only the Company is a
reporting company. Prior to that time, he was an Information Systems executive
with MacMillan Bloedel Ltd. and also a Manager in Systems Consulting for the
Vancouver office of Deloitte Haskins & Sells. SEE "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS".

     KURT R. ZIEMER - Mr. Ziemer was appointed to the Board of Directors on
October 4, 1996 as the board designee of Whetstone Ventures Corporation, Inc.
pursuant to the April 30, 1996 Stock Purchase Agreement with the Company. Since
1989 he has owned and operated Ziemer Buick-Pontiac-GMC Truck, Inc. located in
New Holland, Pennsylvania. From 1977 until 1989, he served in several capacities
for the auto dealership.

(B) DIRECTORSHIPS.

     The current directors hold no other directorships in any Company with a
class of securities registered pursuant to Section 12 of the Exchange Act or
subject to the requirements of Section 15(d) of such Act or any Company
registered as an investment Company under the Investment Company Act of 1940,
except as disclosed herein.


                                       15
<PAGE>


(C) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES.

     None.

(D) FAMILY RELATIONSHIPS.

    Louis M. Kelly, Esquire was hired by the company as Operations Manager. Mr.
    Kelly has served as outside counsel to the Company and has a working
    knowledge of the business. Mr. Kelly is the son of Edward D. Kelly,
    President and CEO of the Company.

ITEM 10. EXECUTIVE COMPENSATION

(A) GENERAL

(B) SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                 ANNUAL COMPENSATON (1)
                                                                 ----------------------
                                       Fiscal Year
    Name &                                Ended                                               Restricted
    Principal Position                 January 31,                Salary          Bonus        Stock (2)
    ------------------                 -----------                ------          -----       ----------
<S>                                        <C>                   <C>               <C>        <C>
                                           2001                  $240,000          $0
    Edward C. Kelly                        2000                  $240,000          $0
    President, CEO                         1999                  $267,000          $0         $1,031,250 (4)
    & Chairman (3)

    Leonard J. Klarich                     2001                  $      0          $0
                                           2000                  $      0          $0
                                           1999                  $ 12,400          $0
    Secretary, Director
    & Vice President (6)
</TABLE>

    (1) There were no long-term incentive payments made in the year-ended
        January 31, 2001.

    (2) Value of restricted stock grants are determined by using the closing bid
        price of the Company's common stock on the date of issuance.

    (3) Mr. Kelly has served as President and Treasurer of the Company since
        June 10, 1994, a director since April 1994, Chairman of the Board since
        June 3, 1996, and was Executive Vice President from January 1994 to June
        10, 1994. This table does not include: (i) accrued director compensation
        of approximately $833 per month since September 1995; (ii) a restricted
        stock award of 9,206 post-split shares granted to Mr. Kelly as a
        component of his compensation for the fiscal year ended January 31,
        1996; (iii) options granted to each board member on October 1, 1996 by
        the Board of Directors for 50,000 post-split shares of


                                       16
<PAGE>


        restricted common stock exercisable for three years at $4.00 per share
        and an option granted for 1,000,000 post-split shares of common stock
        exercisable for two years at .50 per share.

    (4) Represents the value assigned to a restricted stock grant of 1,500,000
        post-split shares made to Mr. Kelly on September 11, 1997, pursuant to
        the terms of the Stock Purchase Agreement from April 1996.

    (5) This table does not include: (i) accrued director compensation of
        approximately $833 per month since September 1995; (ii) an option to
        purchase 1,042 post-split shares of common stock exercisable at $2.40
        per share until December 15, 2005, automatically granted to each
        non-employee director under the 1995 Stock Option Plan on December 15,
        1995, (iii) an option to purchase 4,082 post-split shares of common
        stock exercisable at $2.45 per share until December 15, 2006,
        automatically granted to each non-employee director under the 1995 Stock
        Option Plan; and (iv) an option to purchase 50,000 post-split shares of
        common stock granted by the Board of Directors on October 1, 1996
        exercisable for $4.00 per share until October 1, 1999.

(C) OPTIONS/S.A.R. GRANTS TABLE

    OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 2001

    Each of our Director's received a seven year option to purchase 50,000
    shares of our common stock at an exercise price of $.45.

(D) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUE TABLE.

    None.

(E) LONG TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.

    None.


                                       17
<PAGE>


(F) COMPENSATON OF DIRECTORS.

    Directors are compensated by payment of an annual fee and grant of stock
    options. Each director receives an annual fee of $10,000. Each director also
    receives an option exercisable for seven years to acquire 50,000 shares of
    Tasty Fries common stock for each year of service commencing June 10, 1994.
    The exercise price is equal to the closing bid price of our stock on June
    9th proceeding each year of service. Exercise prices range from $.45 to
    $8.20 per share.

(G) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
    ARRANGEMENTS

    In July, 2001, the Board of Directors approved the terms of an Employment
    Agreement for the Company's Chief Executive Officer. The Employment
    Agreement is for a period of ten years from its date of execution. The
    Employment Agreement provides for an annual salary, to be increased by 10%
    each year. In addition, the Chief Executive Officer is granted the right to
    acquire up to 1,000,000 shares of the Company's restricted Common Stock for
    each full year of his employment with the Company, commencing with the year
    beginning June 10, 1994. The acquisition price for such stock shall be the
    closing price of the stock on June 9 (or the closest business day thereto)
    of each such full year. He has the right to exercise this option at any time
    up to seven years from the date his right to acquire stock vests. The
    agreement also provides for compensation arrangement in the case of
    temporary disability, death and permanent disability.

(H) REPORT ON REPRICING OF OPTIONS/SARS

    None

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.

    The following table sets forth, as of April 20, 2001, the ownership of
    common stock by persons known to the Company who own beneficially more than
    5% of the outstanding shares of common stock:


                                       18
<PAGE>


    Name & Address of                        Amount & Nature of        Percent
    Beneficial Owner                        Beneficial Ownership      of Class
    ----------------                        --------------------      --------

    Edward C. Kelly                              1,688,650               5%
    650 Sentry Parkway, Suite One
    Blue Bell, PA  19422  (1)

    Lancaster Investment Corporation             2,750,000               8%
    11 Waterfront Estates, Estates Drive
    Lancaster, PA  19601  (2,3)


                                       19
<PAGE>


    Name & Address of                        Amount & Nature of        Percent
    Beneficial Owner                        Beneficial Ownership      of Class
    ----------------                        --------------------      --------

    L. Eric Whetstone                              539,000                1%
    11 Waterfront Estates, Estates Drive
    Lancaster, PA  19601  (3,4)

    Whetstone Ventures Corporation, Inc.           777,000                2%
    11 Waterfront Estates, Estates Drive
    Lancaster, PA  17602  (3)

    David Rights                                 3,000,000                6%
    1095 Rydal Rd.
    Rydal, PA 19046

    Ahmad Zhobi                                  4,000,000              9.5%
    U.A.E.
----------

(1) Does not include an option for 100,000 shares of common stock granted by the
    Board of Directors on July 1, 1998 exercisable until July 21, 2001 @ $.50
    per share; options for 300,000 shares expiring ratably between June 10, 2002
    and June 10, 2008 at exercise prices ranging from $.45 to $8.20 per share.
    Does not include options granted in Employment Contract. SEE "EMPLOYMENT
    CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS."

(2) Does not include 900,000 additional shares issued to Lancaster Investments
    pursuant to the terms of the April 1998 financing. These additional shares
    are being held in escrow pending the complete funding of the transaction and
    will be released from escrow on a pro-rata basis as the financing is
    completed. As of January 31, 2001, $1,375,000 of the total $1,500,000
    financing has been received and 2,750,000 of the total 3,000,000 shares have
    been released. SEE "LIQUIDITY AND CAPITAL RESOURCES".

(3) Lancaster Investment Corporation and Whetstone Ventures Corp. are both
    affiliates of L. Eric Whetstone. In aggregate, the 4,056,000 shares
    currently owned by these three parties represent 12.7% of the outstanding
    shares of the Company. SEE "CHANGES IN CONTROL."

(4) Includes 150,000 post-split shares of common stock issued to L. Eric
    Whetstone in connection with the April 1998 financing from Lancaster
    Investment Corp.

(B) SECURITY OWNERSHIP OF MANAGEMENT

    The following table sets forth, as of April 26, 2001, the beneficial common
    stock ownership of all directors, executive officers, and of all directors
    and officers as group:

    Name & Address of                        Amount & Nature of        Percent
    Beneficial Owner                        Beneficial Ownership      of Class
    ----------------                        --------------------      --------
    Edward C. Kelly                              1,688,650                  5%
    650 Sentry Parkway, Suite One
    Blue Bell, PA  19422  (1)

    Leonard J. Klarich                             120,000                  0
    839 Claybrook Court
    Knoxville, TN  37923  (2)


                                       20
<PAGE>


    Name & Address of                        Amount & Nature of        Percent
    Beneficial Owner                        Beneficial Ownership      of Class
    ----------------                        --------------------      --------
    Jurgen A. Wolf                                 120,000                  0
    1285 West Pender Street
    Vancouver, B.C. Canada  (3)

    Ian D. Lambert                                 271,000                  1%
    c/o International Tasty Fries, Inc.
    595 Howe Street, Suite 602
    Vancouver, B.C.  V6C 2T5  (4)

    Kurt R. Ziemer                                 760,000                  2%
    599 Valley View Drive
    New Holland, PA  17557  (5)

    All Officers and Directors                   2,959,650                  7%
    as a group  (5 persons)

----------
    * less than 1%

(1) Does not include an option for 100,000 shares of common stock granted by the
    Board of Directors on July 1, 1998 exercisable until July 21, 2001 @ $.50
    per share; options for 300,000 shares expiring ratably between June 10, 2002
    and June 10, 2008 at exercise prices ranging from $.45 to $8.20 per share.
    Does not include options granted in Employment Contract. SEE "EMPLOYMENT
    CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS."

(2) Does not include: (i) an option to purchase 1,042 post-split shares of
    common stock exercisable at $2.40 per share until December 15, 2005,
    automatically granted to each non-employee director under the 1995 Stock
    Option Plan on December 15, 1995; (ii) an option to purchase 4,082
    post-split shares of common stock exercisable at $2.45 per share until
    December 15, 2006, automatically granted to each non-employee director under
    the 1995 Stock Option Plan; and (iii) options for 300,000 shares expiring
    ratably between June 10, 2002 and June 10, 2008 at exercise prices ranging
    from $.45 to $8.20 per share.

(3) Does not include: (i) an option to purchase 1,042 post-split shares of
    common stock exercisable at $2.40 per share until December 15, 2005,
    automatically granted to each non-employee director under the 1995 Stock
    Option Plan on December 15, 1995, (ii) an option to purchase 4,082
    post-split shares of common stock exercisable at $2.45 per share until
    December 15, 2006, automatically granted to each non-employee director under
    the 1995 Stock Option Plan and (iii) options for 250,000 shares expiring
    ratably between June 10,2002 and June 10, 2008 at exercise prices ranging
    from $.45 to $8.20 per share.

(4) 436,952 post-split shares were issued to International Tasty Fries, Inc. in
    1995 as consideration for a financing. Mr. Lambert is the President of
    International Tasty Fries and is a shareholder of that company. Does not
    include: (i) an option to purchase 1,042 post-split shares of common stock
    exercisable at $2.40 per share until December 15, 2005, automatically
    granted to each non-employee director under the 1995 Stock Option Plan on
    December 15, 1995, (ii) an option to purchase 4,082 post-split shares of
    common stock exercisable at $2.45 per share until December 15, 2006,
    automatically granted to each non-employee director under the 1995 Stock
    Option Plan. options for 250,000


                                       21
<PAGE>


    shares expiring ratably between June 10,2002 and June 10, 2008 at exercise
    prices ranging from $.45 to $8.20 per share.

(5) Does not include 680 shares underlying an option exercisable at $2.45 per
    share until December 15, 2006, automatically granted to each non-employee
    director under the 1995 Stock Option Plan and options for 200,000 expiring
    ratably between June 10, 2002 and June 10, 2008 at exercise prices ranging
    from $.45 to $8.20 per share. Mr. Ziemer's option has been prorated to
    reflect the date he was appointed to the Board of Directors on October 4,
    1996.

(C) CHANGES IN CONTROL.

     In connection with the Subscription Agreement dated April 13, 1998 between
the Company and Lancaster Investment Corp., the Company granted Whetstone
Ventures, Inc. the right to name one of the five directors to the Board of
Directors of Tasty Fries, Inc. Together with a previous right of appointment
(from the April 1996 stock purchase agreement), Whetstone Ventures, Inc. may
appoint two members to the Board of Directors of Tasty Fries, Inc.

     Except as described in this Report, there are no arrangements, known to the
Company, including any pledge by any person of securities of the Company or of
any of its parents, the operation of which may at a subsequent date result in a
change in control of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Mr. Ian Lambert, a director of the Company since July 1995, is the
President and a shareholder of International Tasty Fries, Inc., a stockholder in
the Company and, until November 1996, was President of Yukon Spirit Mines Ltd.
(now doing business as Gainey Resources Ltd.). International Tasty Fries and
Yukon are affiliated entities. International Tasty Fries has a distributorship
agreement with the Company for a number of European countries; Yukon's
distribution agreement was reacquired by the Company in April 1998. Because of
the potentially conflicting interests that Mr. Lambert may face, given his role
as President of one of the Company's distributors and a director of the Company,
Mr. Lambert may find it necessary to recuse himself from certain strategic
discussions in the normal course of business.

SUBSEQUENT EVENTS

     NONE


                                       22
<PAGE>


                              REPORTS ON FORM 8-K.

     Forms 8-K dated May 19, 1999, June 17, 1999, July 20, 1999, August 11,
1999, October 14, 1999 November 20, 1999 and March 20, 2001 are hereby
incorporated by reference.


                                       23
<PAGE>


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


TASTY FRIES, INC.
Date April 27, 2001                            By: _____________________________
                                                        Edward C. Kelly
                                                        President and Principal
                                                        Financial Officer

     In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.


____________________________________                    April 27, 2001
Edward C. Kelly, Chairman, CEO
President, Treasurer & Director


____________________________________                    April 27, 2001
Leonard J. Klarich, Vice President,
Secretary & Director


____________________________________                    April 27, 2001
Jurgen A. Wolf, Director


____________________________________                    April 27, 2001
Ian D. Lambert, Director


____________________________________                    April 27, 2001
Kurt N. Ziemer, Director


                                       24



<PAGE>






                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Stockholders
of Tasty Fries, Inc.

We have audited the accompanying balance sheet of Tasty Fries, Inc. (a
development stage company) as of January 31, 2000, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the year ended
January 31, 2000 and for the period from October 18, 1985 (inception) to January
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Tasty Fries, Inc. (a
development stage company) as of January 31, 1999 were audited by Schiffman
Hughes Brown, PC (whose practice became a part of Larson, Allen, Weishair & Co.,
LLP effective January 1, 2000) whose report dated March 30, 1999 expressed an
unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tasty Fries, Inc. as of January
31, 2000, and the results of its operations and its cash flows for the year
ended January 31, 2000 and from October 18, 1985 (inception) to January 31,
2000, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses since its inception and has a net capital
deficiency, which raises substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters also are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


                                             LARSON, ALLEN, WEISHAIR & CO., LLP

Blue Bell, Pennsylvania
March 31, 2000


<PAGE>



                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                        =================================

                              Financial Statements

                   Years Ended January 31, 2001, 2000 and 1999






<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                TABLE OF CONTENTS

================================================================================








                                                                           Page

Independent Auditor's Report .........................................    1 - 2


Balance Sheets .......................................................      3


Statements of Operations .............................................      4


Statements of Changes in Stockholders' Equity Deficiency .............    5 - 8


Statements of Cash Flows .............................................   9 - 10


Notes to Financial Statements ........................................   11 - 20


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


                                                                   April 2, 2001


Board of Directors and Stockholders
Tasty Fries, Inc.
Blue Bell, Pennsylvania


     We have audited the accompanying balance sheet of TASTY FRIES, INC. (A
Development Stage Company) as of January 31, 2001, and the related statements of
operations, of changes in stockholders' equity deficiency, and of cash flows for
the year then ended and for the period from October 18, 1985 (inception) to
January 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of TASTY
FRIES, INC. (A Development Stage Company) as of January 31, 2000 and for the
years ended January 31, 2000 and 1999, and for the period from October 18, 1985
(inception) to January 31, 2000 were audited by other auditors, whose report
dated March 31, 2000 on those statements was unqualified and included an
explanatory paragraph that described their substantial doubt about the Company's
ability to continue as a going concern as discussed in Note 1 to the financial
statements. The statements of operations, of changes in stockholders' equity
deficiency and of cash flows for the period from October 18, 1985 (inception) to
January 31, 2001 include costs and expenses of $19,185,066 and other expense of
$2,521,100 which relate to periods reported on by the other auditors. Our
opinion on the statements of operations, of changes in stockholders' equity
deficiency and of cash flows for the period from October 18, 1985 (inception) to
January 31, 2001, insofar as it relates to the amounts reported upon by the
other auditors, is based solely on the report of the other auditors.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.


<PAGE>


     In our opinion, the balance sheet as of January 31, 2001 and the related
statements of operations, of changes in stockholders' equity deficiency and of
cash flows for the year then ended and, based on our audit and the report of
other auditors, the statements of operations, of stockholders' equity deficiency
and of cash flows for the period from October 18, 1985 (inception) to January
31, 2001, present fairly, in all material respects, the financial position of
TASTY FRIES, INC. (A Development Stage Company) as of January 31, 2001 and the
results of its operations and its cash flows for the periods then ended, in
conformity with accounting principles generally accepted in the United States of
America.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated any revenues, has incurred
net losses since its inception and has a stockholders' equity deficiency as of
January 31, 2001. These factors raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result in the outcome of this uncertainty.






                                                       GOLDENBERG ROSENTHAL, LLP





Jenkintown, Pennsylvania


                                        2
<PAGE>


<TABLE>
<CAPTION>

                                               TASTY FRIES, INC.
                                         (A DEVELOPMENT STAGE COMPANY)
                                                BALANCE SHEETS

=============================================================================================================

                                                                                           January 31
                                                                                  ---------------------------
        ASSETS                                                                           2001         2000
                                                                                  ------------   ------------
<S>                                                                               <C>            <C>
CURRENT ASSETS
        Cash ..................................................................   $     86,978   $     10,703
                                                                                  ------------   ------------
        TOTAL CURRENT ASSETS ..................................................         86,978         10,703

FURNITURE AND OFFICE EQUIPMENT, net of
        accumulated depreciation of $67,641 in 2001 and
        $57,437 in 2000 .......................................................         10,054         20,258
                                                                                  ------------   ------------
TOTAL ASSETS ..................................................................   $     97,032   $     30,961
                                                                                  ============   ============
        LIABILITIES AND STOCKHOLDERS' EQUITY
              DEFICIENCY

CURRENT LIABILITIES
        Accounts payable and accrued expenses .................................   $    565,064   $    773,576
        Stockholder loan payable ..............................................        270,000        900,000
                                                                                  ------------   ------------
        TOTAL CURRENT LIABILITIES .............................................        835,064      1,673,576
                                                                                  ------------   ------------
UNEARNED REVENUE ..............................................................        320,000        320,000
                                                                                  ------------   ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY DEFICIENCY
        Common stock, $.001 par value
              Authorized 50,000,000 shares
              Issued and outstanding 40,734,011 shares
                    in 2001 and 28,719,011 shares in 2000 .....................         40,734         28,719
        Additional paid-in capital ............................................     24,400,084     19,714,832
        Deficit accumulated in the development stage ..........................    (25,498,850    (21,706,166)
                                                                                  ------------   ------------
        TOTAL STOCKHOLDERS' EQUITY DEFICIENCY .................................     (1,058,032     (1,962,615)
                                                                                  ------------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
        DEFICIENCY ............................................................   $     97,032   $     30,961
                                                                                  ============   ============

</TABLE>

                                       See notes to financial statements


                                                       3
<PAGE>


<TABLE>
<CAPTION>

                                                    TASTY FRIES, INC.
                                              (A DEVELOPMENT STAGE COMPANY)
                                                STATEMENTS OF OPERATIONS
                                       YEARS ENDED JANUARY 31, 2001, 2000 AND 1999
                                  AND OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2001

=======================================================================================================================

                                                               Cumulative               Year Ended January 31
                                                                 Since        -----------------------------------------
                                                               Inception          2001           2000           1999
                                                              ------------    -----------    -----------    -----------
<S>                                                           <C>             <C>            <C>            <C>
REVENUES ..................................................   $       --      $      --      $      --      $      --
                                                              ------------    -----------    -----------    -----------
COSTS AND EXPENSES
        Research, machine and product development .........      3,768,402      1,094,067        144,403        585,417
        Selling, general and administrative ...............     18,042,619      1,531,888      5,113,797      1,660,404
                                                              ------------    -----------    -----------    -----------
        TOTAL COSTS AND EXPENSES ..........................     21,811,021      2,625,955      5,258,200      2,245,821
                                                              ------------    -----------    -----------    -----------
LOSS BEFORE OTHER INCOME (EXPENSE) ........................    (21,811,021)    (2,625,955)    (5,258,200)    (2,245,821)
                                                              ------------    -----------    -----------    -----------
OTHER INCOME (EXPENSE)
        Interest income ...................................         21,274           --             --            1,354
        Forfeited distributor deposits ....................         15,000           --             --             --
        Stock purchase discount ...........................     (1,774,052)      (993,350)      (471,907)      (281,778)
        Interest expense ..................................     (1,950,051)      (173,379)       (53,550)      (985,879)
                                                              ------------    -----------    -----------    -----------
        TOTAL OTHER INCOME (EXPENSE) ......................     (3,687,829)    (1,166,729)      (525,457)    (1,266,303)
                                                              ------------    -----------    -----------    -----------
NET LOSS ..................................................   $(25,498,850)   $(3,792,684)   $(5,783,657)   $(3,512,124)
                                                              ============    ===========    ===========    ===========

NET LOSS PER SHARE OF COMMON STOCK ........................                        ($0.12)        ($0.27)        ($0.28)
                                                                              ===========    ===========    ===========
WEIGHTED AVERAGE SHARES OUTSTANDING .......................                    30,905,531     21,341,885     12,518,419
                                                                              ===========    ===========    ===========

</TABLE>


                                            See notes to financial statements


                                                            4
<PAGE>


<TABLE>
<CAPTION>


                                                   TASTY FRIES, INC.
                                             (A DEVELOPMENT STAGE COMPANY)
                                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY DEFICIENCY
                                    OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2001

======================================================================================================================

                                                                                            DEFICIT
                                                                                          ACCUMULATED         TOTAL
                                                                         ADDITIONAL          IN THE       STOCKHOLDERS'
                                                          COMMON           PAID-IN        DEVELOPMENT        EQUITY
                                                           STOCK           CAPITAL           STAGE        (DEFICIENCY)
                                                       ------------     ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>              <C>
BALANCE, FEBRUARY 1, 1991 ..........................   $    157,307     $   (156,307)    $       --       $      1,000

ISSUED 1,114,679 SHARES FOR NOTE
      CONVERSION ...................................         11,147          113,853             --            125,000

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1992 .............................           --               --           (198,425)        (198,425)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1992 ..........................        168,454          (42,454)        (198,425)         (72,425)

ISSUED 4,275,000 SHARES ............................         42,750          457,250             --            500,000

ISSUED 150,000 SHARES FOR SERVICES .................          1,500           36,000             --             37,500

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1993 .............................           --               --           (773,304)        (773,304)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1993 ..........................        212,704          450,796         (971,729)        (308,229)

ISSUED 7,600,000 SHARES ............................         76,000          464,000             --            540,000

ISSUED 220,000 SHARES FOR SERVICES .................          2,200             --               --              2,200

REDEEMED 3,145,000 SHARES ..........................        (31,450)          31,450             --               --

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1994 .............................           --               --           (658,820)        (658,820)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1994 ..........................        259,454          946,246       (1,630,549)        (424,849)

ISSUED 3,129,999 SHARES ............................         31,300          547,950             --            579,250

ISSUED 2,151,622 SHARES FOR SERVICES ...............         21,516          121,294             --            142,810

ISSUED 1,000,000 SHARES FOR LITIGATION
       SETTLEMENT ..................................         10,000          460,000             --            470,000

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1995 .............................           --               --         (2,148,933)      (2,148,933)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1995
      (CARRIED FORWARD) ............................        322,270        2,075,490       (3,779,482)      (1,381,722)

(continued)

</TABLE>

                                           See notes to financial statements


                                                           5
<PAGE>


<TABLE>
<CAPTION>

                                                   TASTY FRIES, INC.
                                             (A DEVELOPMENT STAGE COMPANY)
                                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY DEFICIENCY
                                    OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2001

======================================================================================================================

(continued)


                                                                                            DEFICIT
                                                                                          ACCUMULATED         TOTAL
                                                                         ADDITIONAL          IN THE       STOCKHOLDERS'
                                                          COMMON           PAID-IN        DEVELOPMENT        EQUITY
                                                           STOCK           CAPITAL           STAGE        (DEFICIENCY)
                                                       ------------     ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>              <C>
BALANCE, JANUARY 31, 1995
      (BROUGHT FORWARD) ............................        322,270        2,075,490       (3,779,482)      (1,381,722)

ISSUED 21,815,000 SHARES ...........................        218,150        1,054,350             --          1,272,500

ISSUED 6,733,502 SHARES FOR SERVICES ...............         67,335          381,880             --            449,215

ISSUED 625,000 SHARES FOR LOAN
      CONVERSION ...................................          6,250           43,750             --             50,000

ISSUED 1,000,000 SHARES FOR
      REPURCHASE OF DISTRIBUTORSHIP ................         10,000           90,000             --            100,000

REVERSE STOCK SPLIT ................................       (620,885)         620,885             --               --

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1996 .............................           --               --         (1,384,488)      (1,384,488)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1996 ..........................          3,120        4,266,355       (5,163,970)        (894,495)

ISSUED 1,455,000 SHARES ............................          1,455        1,506,045             --          1,507,500

ISSUED 125,000 SHARES FOR SERVICES .................            125          324,875             --            325,000

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1997 .............................           --               --         (2,172,260)      (2,172,260)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1997
      (CARRIED FORWARD) ............................          4,700        6,097,275       (7,336,230)      (1,234,255)

(continued)

</TABLE>


                                           See notes to financial statements


                                                           6
<PAGE>


<TABLE>
<CAPTION>

                                                   TASTY FRIES, INC.
                                             (A DEVELOPMENT STAGE COMPANY)
                                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY DEFICIENCY
                                    OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2001

======================================================================================================================

(continued)


                                                                                            DEFICIT
                                                                                          ACCUMULATED         TOTAL
                                                                         ADDITIONAL          IN THE       STOCKHOLDERS'
                                                          COMMON           PAID-IN        DEVELOPMENT        EQUITY
                                                           STOCK           CAPITAL           STAGE        (DEFICIENCY)
                                                       ------------     ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>              <C>
BALANCE, JANUARY 31, 1997
      (BROUGHT FORWARD) ............................          4,700        6,097,275       (7,336,230)      (1,234,255)

ISSUED 1,500,000 SHARES FOR
      NON-RECURRING COMPENSATION ...................          1,500        1,029,750             --          1,031,250

ISSUED 167,083 SHARES ..............................            167           80,650             --             80,817

ISSUED 955,000 SHARES FOR SERVICES .................            955        1,317,545             --          1,318,500

ISSUED 43,750 SHARES FOR
      LITIGATION SETTLEMENT ........................             44           54,644             --             54,688

ISSUED 700,000 SHARES FOR
      CONVERTIBLE NOTES ............................            700          566,979             --            567,679

ISSUED 452,772 SHARES FOR
      REPAYMENT OF NOTES PAYABLE ...................            452          523,587             --            524,039

ISSUED 120,000 SHARES FOR
      REPAYMENT OF NOTES PAYABLE,
      OFFICER/DIRECTOR .............................            120          175,830             --            175,950

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1998 .............................           --               --         (5,074,155)      (5,074,155)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1998 ..........................          8,638        9,846,260      (12,410,385)      (2,555,487)

ISSUED 2,251,307 SHARES ............................          2,252        1,299,526             --          1,301,778

ISSUED 5,586,150 SHARES FOR
      CONVERTIBLE NOTES ............................          5,586        3,129,504             --          3,135,090

ISSUED 42,704 SHARES FOR
      INTEREST ON CONVERTIBLE NOTES ................             43           26,385             --             26,428

ISSUED 1,226,815 SHARES FOR SERVICES ...............          1,227          490,652             --            491,879

ISSUED 250,000 SHARES FOR
      REPURCHASE OF DISTRIBUTORSHIP ................            250          124,750             --            125,000

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 1999 .............................           --               --         (3,512,124)      (3,512,124)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 1999
      (CARRIED FORWARD) ............................         17,996       14,917,077      (15,922,509)        (987,436)

(continued)

</TABLE>


                                           See notes to financial statements


                                                           7
<PAGE>


<TABLE>
<CAPTION>

                                                   TASTY FRIES, INC.
                                             (A DEVELOPMENT STAGE COMPANY)
                                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY DEFICIENCY
                                    OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2001

======================================================================================================================

(continued)


                                                                                            DEFICIT
                                                                                          ACCUMULATED         TOTAL
                                                                         ADDITIONAL          IN THE       STOCKHOLDERS'
                                                          COMMON           PAID-IN        DEVELOPMENT        EQUITY
                                                           STOCK           CAPITAL           STAGE        (DEFICIENCY)
                                                       ------------     ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>              <C>
BALANCE, JANUARY 31, 1999
      (AS RESTATED) (BROUGHT FORWARD) ...............        17,996       14,917,077      (15,922,509)        (987,436)

ISSUED 3,789,000 SHARES .............................         3,789        1,624,291             --          1,628,080

ISSUED 250,000 SHARES FOR
      LITIGATION SETTLEMENT .........................           250          124,750             --            125,000

ISSUED 6,184,405 SHARES FOR SERVICES ................         6,184        2,799,214             --          2,805,398

ISSUED 500,000 SHARES FOR
      REPURCHASE OF DISTRIBUTORSHIP .................           500          249,500             --            250,000

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 2000 ..............................          --               ---        (5,783,657)      (5,783,657)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 2000 ...........................        28,719       19,714,832      (21,706,166)      (1,962,615)

ISSUED 3,660,000 SHARES .............................         3,660        1,228,140             --          1,231,800

ISSUED 3,155,000 SHARES FOR SERVICES ................         3,155        1,312,312             --          1,315,467

ISSUED 4,000,000 SHARES FOR
      REPAYMENT OF NOTE PAYABLE .....................         4,000        1,596,000             --          1,600,000

ISSUED 1,200,000 SHARES FOR
      PAYMENT OF ACCRUED EXPENSES ...................         1,200          548,800             --            550,000

NET LOSS FOR THE YEAR ENDED
      JANUARY 31, 2001 ..............................          --               --         (3,792,684)      (3,792,684)
                                                       ------------     ------------     ------------     ------------

BALANCE, JANUARY 31, 2001 ...........................  $     40,734     $ 24,400,084     $(25,498,850)    $ (1,058,032)
                                                       ============     ============     ============     ============

</TABLE>


                                            See notes to financial statements


                                                            8
<PAGE>


<TABLE>
<CAPTION>

                                                          TASTY FRIES, INC.
                                                    (A DEVELOPMENT STAGE COMPANY)
                                                      STATEMENTS OF CASH FLOWS
                                             YEARS ENDED JANUARY 31, 2001, 2000 AND 1999
                                        AND OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2001

===================================================================================================================================

                                                                           Cumulative               Year Ended January 31
                                                                             Since        -----------------------------------------
                                                                           Inception          2001           2000           1999
                                                                          ------------    -----------    -----------    -----------
<S>                                                                       <C>             <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES ..................................   $(25,498,850)   $(3,792,684)   $(5,783,657)   $(3,512,124)
   Net loss
   Adjustments to reconcile net loss to net cash used in operating
      activities
         Depreciation and amortization ................................        304,497         10,204        141,869         90,756
         Common stock issued for services .............................      8,154,581      1,316,317      2,805,398        491,879
         Common stock issued for litigation settlement ................        649,689           --          125,000           --
         Stock purchase discount ......................................      1,774,052        993,300        471,907        281,778
         Common stock issued for interest on convertible notes ........      1,129,196           --             --          959,196
         Common stock issued for repurchase of distributorships .......        250,000           --          250,000           --
         Accrued interest on notes and convertible notes payable ......        398,577           --             --             --
         (Increase) decrease in assets
            Other assets ..............................................           --             --          123,313       (123,313)
         Increase (decrease) in liabilities
            Accounts payable and accrued expenses .....................      1,115,064        340,638       (297,175)       437,709
            Unearned revenue ..........................................        320,000           --           59,000         10,000
                                                                          ------------    -----------    -----------    -----------
   NET CASH USED IN OPERATING ACTIVITIES ..............................    (11,403,194)    (1,132,225)    (2,104,345)    (1,364,119)
                                                                          ------------    -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of furniture and office equipment .........................        (77,695)          --           (7,519)          --
   Loan costs .........................................................       (236,856)          --             --             --
                                                                          ------------    -----------    -----------    -----------
   NET CASH USED IN INVESTING ACTIVITIES ..............................       (314,551)          --         (7,519)            --
                                                                          ------------    -----------    -----------    -----------
Cash flows from financing activities
   Proceeds from convertible notes payable ............................      2,600,000           --             --             --
   Issuance of common stock ...........................................      8,080,173      1,257,200      1,156,173      1,020,000
   Costs of raising capital ...........................................       (318,700)      (318,700)          --             --
   Loan receivable, officers ..........................................           --             --             --           30,377
   Note payable, current ..............................................      1,363,250        270,000        900,000           --
   Officer/director note ..............................................         80,000           --             --             --
                                                                          ------------    -----------    -----------    -----------
   NET CASH PROVIDED BY FINANCING ACTIVITIES ..........................     11,804,723      1,208,500      2,056,173      1,050,377
                                                                          ------------    -----------    -----------    -----------
INCREASE (DECREASE) IN CASH (CARRIED FORWARD) .........................         86,978         76,275        (55,691)      (313,742)

(continued)

                                                  See notes to financial statements

</TABLE>


                                                                  9
<PAGE>


<TABLE>
<CAPTION>

                                                          TASTY FRIES, INC.
                                                    (A DEVELOPMENT STAGE COMPANY)
                                                      STATEMENTS OF CASH FLOWS
                                             YEARS ENDED JANUARY 31, 2001, 2000 AND 1999
                                        AND OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2001

===================================================================================================================================

(continued)

                                                                           Cumulative               Year Ended January 31
                                                                             Since        -----------------------------------------
                                                                           Inception          2001           2000           1999
                                                                          ------------    -----------    -----------    -----------
<S>                                                                       <C>             <C>            <C>            <C>

INCREASE (DECREASE) IN CASH (BROUGHT FORWARD) .........................         86,978         76,275        (55,691)      (313,742)

CASH, BEGINNING OF PERIOD .............................................           --           10,703         66,394        380,136
                                                                          ------------    -----------    -----------    -----------
CASH, END OF PERIOD ...................................................   $     86,978    $    86,978    $    10,703    $    66,394
                                                                          ============    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION

      Cash paid during the period for interest ........................   $     54,803    $      --      $     8,952    $      --
                                                                          ============    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH
   FINANCING ACTIVITIES

      Issuance of common stock for services ...........................   $  8,154,581    $ 1,316,317    $ 2,805,398    $   491,879
      Issuance of common stock for conversion of note payable .........      2,675,000           --             --        2,202,321
      Issuance of common stock for repurchase of distributorship ......        475,000           --          250,000        125,000
      Issuance of common stock for litigation settlement ..............        649,689           --          125,000           --
      Accrued interest on notes payable ...............................        398,577           --             --             --
      Issuance of common stock to pay accrued expenses ................        550,000        550,000           --             --
      Issuance of common stock to pay note payable ....................        900,000        900,000           --             --


                                                  See notes to financial statements

</TABLE>


                                                                 10
<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------



NOTE 1  DESCRIPTION OF BUSINESS

     The Company is a development stage company since it has not completed
     designing, testing, and manufacturing its sole product, a vending machine
     that will cook and dispense french fries. For the past three years the
     Company has been tooling and producing its first 25 machines. This process
     has been extended for a long period of time as a result of limited working
     capital. The costs associated with the production of the machines has been
     charged to research, machine and product development costs. From the
     corporation's date of inception, October 18, 1985, to date it has engaged
     in various business activities that were unprofitable. The Company had no
     revenues from operations from the sale of its french fry vending machine
     since inception and its ability to continue as a going concern is dependent
     on the continuation of financing to fund the expenses relating to
     successfully manufacturing and marketing the vending machine. Management is
     currently in negotiations with several funding sources to provide the
     working capital necessary to: (i) begin commercial production of the
     machines, and (ii) bring them to market, at which time the Company believes
     that sufficient cash will be generated to support its operations.
     Management cannot assure the ultimate success of the above plan.


NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     FURNITURE AND OFFICE EQUIPMENT AND DEPRECIATION

     Furniture and office equipment are stated at cost. Depreciation is
     determined using the straight-line method over the estimated useful lives
     of the equipment, ranging from 3 to 7 years. Depreciation expense for the
     years ended January 31, 2001, 2000 and 1999 was $10,204, $12,037 and
     $11,805, respectively.


     RESEARCH, MACHINE AND PRODUCT DEVELOPMENT

     Research and development costs consist of expenditures incurred by the
     Company during the course of planned search and investigation aimed at the
     discovery of new knowledge, which will be used to develop and test a
     vending machine and potato product for the formation of french fries.
     Research and development costs also include costs for significant
     enhancements or improvements to the machine and/or potato product. The
     Company expenses all such research and development costs as they are
     incurred.




                                       11


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     IMPAIRMENT OF LONG-LIVED ASSETS

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
     121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to be Disposed of", assets are generally evaluated on a
     market-by-market basis in making a determination as to whether such assets
     are impaired. At each year-end, the Company reviews its long-lived assets
     for impairment based on estimated future nondiscounted cash flows
     attributable to the assets. In the event such cash flows are not expected
     to be sufficient to recover the recorded value of the assets, the assets
     are written down to their estimated fair values.

     INCOME TAXES

     Income taxes are provided for the tax effects of transactions reported in
     the financial statements and consists of taxes currently due plus deferred
     taxes related primarily to differences between the bases of balance sheet
     items for financial and income tax reporting. The Company determines the
     deferred tax asset generated by net operating loss carryforwards. All
     deferred tax assets are evaluated and a valuation allowance, if necessary,
     is established.

     UNEARNED REVENUE

     Unearned revenue represents amounts received for distribution rights of the
     vending machines, which the Company is still in the process of developing
     and testing. The Company records these amounts as unearned revenue upon
     receipt. These deferrals will be recognized as income over the life of the
     machine upon commercial production of machines or upon forfeiture by
     distributors as a result of breach of contract. Since commercial production
     of the machine has not commenced, the unearned revenue is classified as a
     non-current liability.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the amounts
     reported in its financial statements and accompanying notes. Actual results
     could differ from those estimates.

     CONCENTRATION OF CREDIT RISK

     The Company occasionally maintains deposits in banks in excess of federally
     insured limits. The risk is managed by maintaining all deposits in high
     quality financial institutions.




                                       12


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     LOSS PER SHARE

     In March, 1997, the Financial Accounting Standards Board issued SFAS No.
     128, "Earnings Per Share". The statement requires the Company to disclose
     both basic earnings per share and diluted earnings per share for annual and
     interim periods ending after December 15, 1997. Basic earnings per share is
     based on the weighted average number of common shares outstanding, while
     diluted earnings per share is based on the weighted average number of
     common shares and common share equivalents that would arise from the
     exercise of options and warrants or conversion of convertible securities.
     The Company incurred losses from operations in 2001, 2000 and 1999;
     therefore, basic and diluted earnings per share have been computed in the
     same manner since the exercise of warrants and the conversion of the
     convertible notes payable would be antidilutive.

     RECENT ACCOUNTING PRONOUNCEMENTS

     There are no recently issued accounting pronouncements that are expected to
     have a significant impact on the Company's financial statements.


NOTE 3  VENDING MACHINES

     Vending machines are carried at the lower of market or net realizable
     value. Net realizable value is defined as estimated selling price of the
     machines less predictable costs of completion and disposal. Since the
     predictable cost of completion exceeds the estimated selling price the
     vending machines are stated at zero.


NOTE 4  NOTES PAYABLE

     In October, 1999, the Company received $900,000 in proceeds from a loan
     made to the Company by a stockholder. The loan bears an interest rate of
     18% per annum and was due on June 30, 2000. The $900,000 note was repaid in
     January, 2001 by the issuance of common stock. Accrued interest on these
     loans as of January 31, 2001 and 2000 was $251,000 and $53,550,
     respectively.

     Another $270,000 was borrowed from this stockholder during the year ended
     January 31, 2001. This loan bears interest at 18% per annum and is due
     March 31, 2001.


NOTE 5  CONVERTIBLE NOTES PAYABLE

     In June, 1997, the Company received $1,000,000 in exchange for notes
     convertible into the Company's common stock. These convertible notes bear
     interest at the rate of 7% per annum and were due May 14, 2000. The holders
     of these notes were entitled, at their option, to convert any or all of





                                       13


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 5  CONVERTIBLE NOTES PAYABLE (continued)

     the principal into the Company's common stock at a conversion price for
     each share of common stock equal to 70% of the average closing bid price of
     common stock for the five business days immediately preceding the date of
     receipt of notice of conversion. The convertible debt was discounted for
     the beneficial conversion feature, additional paid in capital was increased
     by the discounted amount, and the discount was amortized using the interest
     method over the term of the convertible debt or ratably when conversion
     occurs. For the years ended January 31, 2001, 2000, and 1999 amortization
     was $-0-, $-0- and $260,538, respectively. Pursuant to the terms of the
     financing, the Company issued 1,142,857 shares of common stock to be held
     in escrow, pending the potential conversion of notes.

     In September, 1997, the note holders converted an aggregate of $397,679 of
     principal into 700,000 shares of common stock. In November, 1997, the
     Company issued an additional 380,000 shares of common stock to be held in
     escrow for potential conversion of notes. In February, 1998, an additional
     444,000 shares of common stock were issued into escrow, pending conversion
     of the notes. During the year ended January 31, 1999, the Company issued
     1,480,280 shares of common stock in satisfaction of the remaining $602,321
     of convertible notes.

     In November, 1997, in a separate transaction, the Company received
     $1,600,000 in exchange for notes convertible into the Company's common
     stock. These convertible notes bear interest at the rate of 6% per annum
     and were due May 14, 2000. The holders of these notes were entitled, at
     their option, to convert any or all of the principal into the Company's
     common stock at a conversion price for each share of common stock equal to
     70% of the average closing bid price of common stock for the five business
     days immediately preceding the date of receipt of notice of conversion.
     These convertible notes were also recorded in the method described in the
     second preceding paragraph. For the years ended January 31, 2001, 2000, and
     1999 amortization was $-0-, $-0- and $672,231, respectively. Pursuant to
     the terms of the financing, the Company issued 2,400,000 shares of common
     stock to be held in escrow, pending the potential conversion of notes.

     In February, 1998, an additional 960,000 shares of common stock were issued
     into escrow, pending conversion of the notes. During the year ended January
     31, 1999, the Company issued 4,105,870 shares of common stock in
     satisfaction of these convertible notes.


NOTE 6  UNEARNED REVENUE

     During the year ended January 31, 1999, the Company issued 250,000 shares
     of common stock to reacquire an existing distributorship valued at
     $125,000. The Company also received during the year $10,000 as a deposit on
     the machines in production.



                                       14


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 6  UNEARNED REVENUE (continued)

     During the year ended January 31, 2000, the Company issued 500,000 shares
     of common stock to reacquire an existing distributorship valued at $41,000.
     The Company received $100,000 as a deposit on the machines in production.
     As of January 31, 2001 and 2000, amounts related to distribution rights
     were $210,000 and deposits on machines totalled $110,000.


NOTE 7  COMMITMENTS

     During the years ended January 31, 2001, 2000 and 1999, the Company
     incurred $25,680, $42,946 and $43,314, respectively, for the rental of
     office space. The Company's current lease commitments total approximately
     $3,000 per month until May 31, 2001.


NOTE 8  LITIGATION

     CALIFORNIA FOOD & Vending, Inc.

     In May, 1991, the Company entered into a joint venture agreement with
     California Food & Vending, Inc. ("CFV"), another vending and food service
     company with a high interest in the research and development of a french
     fry vending machine. The companies planned to work together in the
     manufacturing and marketing of a french fry machine. Disputes arose between
     the parties, litigation was instituted by CFV and in July, 1999 the
     disputes were settled and the litigation dismissed. Pursuant to the
     settlement agreement, the Company regained distributorship rights for the
     State of California; agreed to pay CFV the sum of $1,000,000 which has been
     paid; issue 250,000 shares of Company common stock to CFV; and CFV will
     receive $350 for each of the first 500 machines produced and $450 per
     machine thereafter and $.25 for each pound of potato product sold by Tasty
     Fries, Inc.

     PRIZE FRIZE LITIGATION

     On August 28, 1996, the Company, the President of the Company and Premier
     Design, Ltd., were added as defendants to a civil law suit in the Riverside
     County Branch of the Superior Court of the State of California brought by
     Prize Frize, Inc., William Bartfield and Larry Wirth. The suit also named
     as defendants approximately 25 other parties, all allegedly involved, in
     some manner, in the pursuit of the french fry vending machine concept
     and/or business. The case was removed to Federal Court. The Company
     successfully moved for dismissal of the claim on behalf of itself and its
     President; the case was dismissed on June 2, 1997. The dismissal was
     reversed on appeal by the Federal Court and the case was remanded to State
     Court. The plaintiffs' claim against Tasty Fries was severed. The





                                       15


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 8  LITIGATION (continued)

     PRIZE FRIZE LITIGATION (continued)

     claims against the President of the Company and Premier Design, Ltd. were
     dismissed. The claim brought by Prize Frize asserts that the Company has
     usurped its trade secrets by developing a French fry vending machine, which
     utilizes the basic American food potato product. The Company denies the
     allegations and is vigorously defending the litigation. It is the opinion
     of the Company's counsel that Prize Frize's lawsuit lacks merit and that
     the Company will prevail.


NOTE 9  STOCK OPTION PLAN

     As of September 18, 1995, the Company established an incentive stock option
     plan (the "Plan") and presently has reserved 1,500,000 shares of the
     Company's common stock for issuance under the Plan. During the year ended
     January 31, 1999 the Company granted 1,000,000 options to employees. These
     options have an exercise price of $.50 and vest immediately. In the year
     ended January 31, 2000, 500,000 options were granted to certain
     non-employee directors of the Company. These options have an exercise price
     of $.50 and vest immediately. Each Board member also was granted a 50,000
     share option for each year of service to the Tasty Fries Board. Each Board
     member will receive a 50,000 share option for each full year of service to
     the Company, commencing with the year June 10, 1994 and ending on the date
     the Board member resigns or otherwise is removed from office. The exercise
     price for such stock option shall be the closing price of the stock on June
     9, or the closest day thereto, of each such year. Each board member is
     granted the right to exercise his option at any time up to seven years from
     the date his right to acquire stock vests. All issuances were granted at
     not less than fair market value of the Company's common stock at time of
     grant.

     In March, 2000, the Board of Directors approved a stock option plan for a
     key employee who shall receive a 30,000 share option for each full year of
     service to the Company, commencing with the year beginning June 10, 1994
     and ending on the date she resigns or is otherwise removed from office. The
     acquisition price for such stock shall be the closing price of the stock on
     June 9 (or the closest business day thereto) of each such year. This
     employee is granted the right to exercise this option to acquire the
     Company's stock at any time up to seven years from the date her right to
     acquire stock vests.

     As of January 31, 2001 and 2000, no options have been exercised.





                                       16


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------



NOTE 9  STOCK OPTION  PLAN (continued)

     Transactions in the Plan are as follows:

<TABLE>
<CAPTION>
                                                                                     Weighted
                                                                                     Average
                                                                Exercise Price    Exercise Price
                                                                  Per Vested        Per Vested
                                      Granted       Vested          Common            Common
                                      Shares        Shares          Stock             Share
                                     ---------     ---------    --------------    --------------
     <S>                             <C>           <C>          <C>                   <C>
     Balance, February 1, 1998          12,926        12,926                          $2.45

     Activity during the year
          ended January 31, 1999
                                     1,000,000     1,000,000         $.50              $.50
                                     ---------     ---------

     Balance, January 31, 1999       1,012,926     1,012,926                           $.52

     Activity during the year
          ended January 31, 2000
                                     1,750,000     1,750,000    $.45 to $8.20         $1.70
                                     ---------     ---------

     Balance, January 31, 2000       2,762,926     2,762,926                          $1.26

     Activity during the year
          ended January 31, 2001
                                       180,000       180,000         $.45              $.45
                                     ---------     ---------

     Balance, January 31, 2001       2,942,926     2,942,926                          $1.21
                                     =========     =========
</TABLE>

     The Company accounts for stock-based compensation in accordance with
     Statement of Financial Accounting Standards No. 123, Accounting for
     Stock-Based Compensation, which permits the use of the intrinsic value
     method described in Accounting Principles Board ("APB") Opinion No. 25,
     Accounting for Stock Issued to Employees, and requires the Company to
     disclose the pro forma effects of accounting for stock-based compensation
     using the fair value method as described in the optional accounting
     requirements of SFAS No. 123. As permitted by SFAS No. 123, the Company
     will continue to account for the stock-based compensation under APB Opinion
     No. 25, under which the Company has recognized no compensation expense.






                                       17


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 9  STOCK OPTION PLAN (continued)

     Had compensation cost for the Company's stock option plan been determined
     based on the fair value of the Company's common stock at the dates of
     awards using the Black-Scholes value method of SFAS No. 123, the Company's
     net loss and net loss per common share would have been adjusted to the pro
     forma amounts as follows:

<TABLE>
<CAPTION>
                                                        Year Ended January 31
                                             -----------------------------------------

                                                2001            2000           1999
                                             ----------      ----------     ----------
     <S>                                    <C>             <C>            <C>
     Net loss
          As reported                       ($3,792,684)    ($5,783,657)   ($3,512,124)
          Pro forma                         ( 3,844,284)    ( 6,212,402)   ( 3,727,124)
     Net loss per common share
          As reported                       (       .12)    (       .27)   (       .28)
          Pro forma                         (       .12)    (       .29)   (       .30)
</TABLE>

     Significant  assumptions used to calculate the fair value of the awards are
     as follows:

<TABLE>
<CAPTION>
                                                        Year Ended January 31
                                             -----------------------------------------

                                                2001            2000           1999
                                             ----------      ----------     ----------
     <S>                                     <C>             <C>            <C>
     Risk free interest rates of return          6.00%           6.00%          6.00%
     Expected option life                    84 months       84 months      84 months
     Volatility                                    50%             50%            50%
     Expected dividends                            --              --             --
</TABLE>


NOTE 10  PREFERRED STOCK

     On July 29, 1991, the Board of Directors authorized 5,000,000 shares of
     preferred stock at a par value of $.001 per share. No shares of preferred
     stock have been issued.



NOTE 11  OPTIONS AND WARRANTS ISSUED AND OUTSTANDING

     As of January 31, 2001 and 2000, the Company had 11,225,000 and 5,792,052
     warrants and 9,775,680 and 4,292,052 options, respectively, to purchase
     common stock outstanding. The warrants and options are exercisable at share
     prices between $.40 and $8.20 per share and expire at various dates through
     December, 2006.




                                       18


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 12  INCOME TAXES

     The Company has approximately $22,000,000 in net operating loss
     carryforwards, which can be used to offset future taxable income. The net
     operating loss carryforwards expire through 2020.

     The components of the Company's deferred tax assets as of January 31, 2001
     and 2000 are as follows:

                                                2001                  2000
                                             ------------          -----------

     Net operating loss carryforwards         $10,000,000           $6,300,000
     Valuation allowance                     ( 10,000,000)         ( 6,300,000)
                                             ------------          -----------

     Deferred tax asset                       $        --           $       --
                                             ============          ===========

     The valuation allowance increased by $3,700,000 and $1,680,000 in the years
     ended January 31, 2001 and 2000, respectively.

     There are no significant differences between taxes computed at the federal
     statutory rate and the provision for income taxes for the years ended
     January 31, 2001, 2000 and 1999.


NOTE 13  APRIL 1998 FINANCING

     In April, 1998, the Company entered into an agreement to receive $1,500,000
     in proceeds from the sale of restricted stock to a U.S. corporation. The
     Company issued 3,000,000 shares of common stock as consideration for the
     investment. The Company also issued warrants to purchase 1,500,000 shares
     of common stock at an exercise price of $1.90; the warrants expire April
     12, 2001. The Company also issued 150,000 shares of restricted stock as a
     commission on the transaction. The Company and the investor have entered
     into an escrow agreement for this transaction and all of the shares were
     issued into escrow, pending funding. As of January 31, 2001, $1,425,000 of
     the $1,500,000 in proceeds has been received by the Company and 2,850,000
     of the 3,000,000 shares of restricted common stock held in escrow have been
     released to the investor. The balance of funds due have not been received
     as of the report date.


NOTE 14  DIRECTORS' FEES

     The Company accrued Board of Directors' fees for the years ended January
     31, 1997 through January 31, 2001 in the amount of $260,000. Interest has
     not been accrued on the unpaid balance.

     In January, 2001, 500,000 shares of stock were issued at $.40 each to
     retire $200,000 of this liability.




                                       19


<PAGE>


                                TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 15  EMPLOYMENT AGREEMENT

     In July, 2000, the Board of Directors approved the terms of an Employment
     Agreement for the Company's Chief Executive Officer. The Employment
     Agreement is for a period of ten years from its date of execution. The
     Employment Agreement provides for an annual salary, to be increased by 10%
     each year. In addition, the Chief Executive Officer is granted the right to
     acquire up to 1,000,000 shares of the Company's restricted Common Stock for
     each full year of his employment with the Company, commencing with the year
     beginning June 10, 1994. The acquisition price for such stock shall be the
     closing price of the stock on June 9 (or the closest business day thereto)
     of each such full year. He has the right to exercise this option at any
     time up to seven years from the date his right to acquire stock vests. The
     agreement also provides for compensation arrangement in the case of
     temporary disability, death and permanent disability.



NOTE 16  SUBSEQUENT EVENT

     In March, 2001, the Board of Directors authorized an increase in the
     authorized number of shares of stock from 50,000,000 to 100,000,000.










                                       20